Business Combination: Purchase of Shares Example (Less than 100%

On December 31, 2020, the statements of financial position of Par Company and Sub Company are
as follows:
Par Company Sub Company
Cash 7,000,000 200,000
Accounts receivable 1,000,000 600,000
Inventory 1,300,000 800,000
Capital assets (net) 6,700,000 3,400,000
Total Assets 16,000,000 5,000,000

Current liabilities 3,000,000 200,000

Long-term liabilities 4,000,000 800,000
Common shares 5,000,000 1,000,000
Contributed surplus - 1,000,000
Retained earnings 4,000,000 2,000,000
Total Liabilities & Equity 16,000,000 5,000,000

For both companies, the fair values of their identifiable assets and liabilities are equal to their
carrying values except for the following fair values:

Par Company Sub Company

Inventories 1,000,000 600,000
Capital assets [net] 7,000,000 5,000,000
Long-term liabilities 3,800,000 1,100,000

On December 31, 2020, Par Company purchased 75% of the outstanding voting shares Sub
Company for $4.5 million in cash. Sub Company continues to operate as a separate legal entity.

Required:
Prepare a consolidated statement of financial position using each of the following methods:
(a) Identifiable Net Assets Method (also known as the Partial Goodwill Method and previously known as the Parent
(b) Fair Value Enterprise Method (also known as the Full Goodwill Method and previously known as the Entity Meth
Less than 100% Ownership - i.e., Non-Controlling Interest)

ously known as the Parent-Company Extension Method)

known as the Entity Method)
 Eliminations/Adjustments MEASURE GOODWILL
Description Par Company Sub Company Debits Credits Consolidated Purcahse Price Parent % NCI %
Cash 7,000,000 200,000 7,200,000 Fair Value of Investment
Accounts Receivable 1,000,000 600,000 1,600,000 Less Carrying Value of Sub's Identifiable Net Assets
Inventory 1,300,000 800,000 - 2,100,000 Fair value adjustment (also known as acquisition differential)
Capital Assets FV Adjustment
6,700,000 3,400,000 - 10,100,000 Identifiable Net Assets Carrying Values Fair Values Allocated to INA
Goodwill - -
Investment in Sub - -
Total Assets 16,000,000 5,000,000 21,000,000

Current Liabilities 3,000,000 200,000 3,200,000

Longterm Liabilities 4,000,000 800,000 - 4,800,000 -
Common Shares 5,000,000 1,000,000 - 6,000,000 Goodwill -
Contributed Surplus - 1,000,000 - 1,000,000 Consolidation Goodwill Under the Identifable Net Asset Method only includes parents share
Retained Earnings 4,000,000 2,000,000 - 6,000,000 Non-Controlling Interest (exlcudes goodwill)
Non-Controlling Interest - -
Total Liabilities & Equity 16,000,000 5,000,000 21,000,000
Worksheet Balance Check - - - ELIMINATE and RECOGNIZE
Note: The parent company statements did not include the investment acc. So that had to be updated first by - Eliminate parents investment account and subsidiary's share equity accounts
debiting Investment Acc and crediting cash - Eliminate intercompany transactions and balances
- Eliminate Unrealized profits
- Recognize Realized profits
To record investment in sub
Eliminate parents investment account and subsidiary's share equity accounts AMORTIZE FAIR VALUE ADJUSTMENTS
- Elinimate Subsidiary Equity Accounts - Amortize FVAs
- Allocate Acquisition Differential (including goodwill or gain on bargain purchase) - Recognize imparments
- Establish Non-Controlling Interest - Recognize imparments

Recognize NCI Share of Earnings

JE Check -
 Eliminations/Adjustments MEASURE GOODWILL
Description Par Company Sub Company Debits Credits Consolidated Purcahse Price Parent % NCI %
Cash 7,000,000 200,000 7,200,000 Fair Value of Investment
Accounts Receivable 1,000,000 600,000 1,600,000 Less Carrying Value of Sub's NIA
Inventory 1,300,000 800,000 - 2,100,000 Fair value adjustment (also known as acquisition differential)
Capital Assets 6,700,000 3,400,000 - 10,100,000 Carrying Values Fair Values FV Adjustment
Goodwill - - - -
Investment in Sub - - - -
Total Assets 16,000,000 5,000,000 21,000,000

Current Liabilities 3,000,000 200,000 3,200,000

Longterm Liabilities 4,000,000 800,000 - 4,800,000
Common Shares 5,000,000 1,000,000 - 6,000,000
Contributed Surplus - 1,000,000 - 1,000,000
Retained Earnings 4,000,000 2,000,000 - 6,000,000
Non-Controlling Interest - - - -
Total Liabilities & Equity 16,000,000 5,000,000 21,000,000
Worksheet Balance Check - - - - - ELIMINATE and RECOGNIZE
Note: The parent company statements did not include the investment acc. So that had to be updated first by - Eliminate parents investment account and subsidiary's share equity accounts
debiting Investment Acc and crediting cash - Eliminate intercompany transactions and balances
- - - Eliminate Unrealized profits
- - - Recognize Realized profits
To record investment in sub
Eliminate parents investment account and subsidiary's share equity accounts AMORTIZE FAIR VALUE ADJUSTMENTS
- Elinimate Subsidiary Equity Accounts - Amortize FVAs
- Allocate Acquisition Differential (including goodwill or gain on bargain purchase) - Recognize imparments
- Establish Non-Controlling Interest - Recognize imparments

Recognize NCI Share of Earnings

JE Check -